form10-q_051506



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2006

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission file number 000-27719

Greenville First Bancshares, Inc.
(Exact name of registrant as specified in its charter)


South Carolina	58-2459561
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

112 Haywood Road
Greenville, S.C.	29607
(Address of principal executive offices)	(Zip Code)

864-679-9000
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act).
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
2,663,719 shares of common stock, $.01 par value per share, were issued and outstanding as of May 1, 2006.

The financial statements of Greenville First Bancshares, Inc. and Subsidiary are set forth in the following pages.

					March 31,		December 31,
					2006		2005
					(Unaudited)		(Audited)
Assets
	Cash and due from banks				$	5,548,030	$	6,223,397
	Federal funds sold				2,784,642		19,380,755
	Investment securities available for sale				12,879,929		11,310,956
	Investment securities held to maturity-
	(fair value $18,191,500 and $18,709,112)				18,823,977		19,345,016
	Other investments, at cost				5,732,600		5,475,400
	Loans, net				359,876,851		334,040,776
	Property and equipment, net				5,616,404		5,576,882
	Accrued interest receivable				1,820,811		1,694,648
	Other real estate owned				1,837,849		-
	Other assets				2,860,422		2,264,713

	Total assets				$	417,781,515	$	405,312,543

Liabilities
	Deposits				$	275,806,843	$	254,148,041
	Official checks outstanding				2,086,886		7,786,468
	Federal funds purchased and repurchase agreements				14,232,000		14,680,000
	Federal Home Loan Bank advances				79,000,000		79,500,000
	Junior subordinated debentures				13,403,000		13,403,000
	Accrued interest payable				1,523,915		1,510,635
	Accounts payable and accrued expenses				418,975		3,811,652

			Total liabilities		386,471,619		374,839,796

Commitments and contingencies

Shareholders' equity
	Preferred stock, par value $.01 per share, 10,000,000 shares
		authorized, no shares issued			-		-
	Common stock, par value $.01
	Authorized, 10,000,000 shares, issued and outstanding 2,663,719 and
	2,659,719 at March 31, 2006 and December 31, 2005, respectively				26,637		26,597
	Additional paid-in capital				25,653,380		25,626,740
	Accumulated other comprehensive loss				(182,037)		(150,602)
	Retained earnings				5,811,916		4,970,012

				Total shareholders' equity	31,309,896		30,472,747

				Total liabilities and shareholders' equity	$	417,781,515	$	405,312,543

See notes to consolidated financial statements that are an integral part of these consolidated statements.

GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

			For the three months ended
			March 31,
			2006		2005
			(Unaudited)
Interest income
	Loans		$	6,146,049	$	4,171,261
	Investment securities		431,690		405,090
	Federal funds sold		48,391		5,811

	Total interest income		6,626,130		4,582,162
Interest expense
Deposits			2,112,958		1,154,686
Borrowings			1,153,369		746,886
Total interest expense			3,266,327		1,901,572

Net interest income			3,359,803		2,680,590
Provision for loan losses			400,000		345,000

Net interest income after provision for loan losses			2,959,803		2,335,590

Noninterest income
	Loan fee income		30,801		46,624
	Service fees on deposit accounts		62,071		73,537
	Other income		62,703		93,214

		Total noninterest income	155,575		213,375

Noninterest expenses
	Compensation and benefits		1,033,741		794,793
	Professional fees		90,437		78,243
	Marketing		138,569		90,279
	Insurance		43,034		36,823
	Occupancy		174,777		165,725
	Data processing and related costs		197,870		215,208
	Telephone		15,882		10,952
	Other		95,234		92,188

		Total noninterest expenses	1,789,544		1,484,211

		Income before income taxes expense	1,325,834		1,064,754

Income tax expense			483,930		404,606

Net income			$	841,904	$	660,148

Earnings per common share
	Basic		$	.32	$	.25
	Diluted		$	.29	$	.23

Weighted average common shares outstanding
Basic			2,661,136		2,647,994
Diluted			2,950,761		2,918,272

See notes to consolidated financial statements that are an integral part of these consolidated statements.

GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(Unaudited)

							Accumulated				Total
					Additional		other				share-
		Common stock			paid-in		comprehensive		Retained		holders'
		Shares	Amount		capital		income (loss)		earnings		equity

December 31, 2004		2,647,994	$	26,480	$	25,546,259	$	49,989	$	2,455,860	$	28,078,588

Net income		-	-		-		-		660,148		660,148

Comprehensive income, net of tax -
	Unrealized holding loss on securities
	available for sale	-	-		-		(113,776)		-		(113,776)

Comprehensive income		-	-		-		-		-		546,372

Proceeds from exercise of stock
	options and warrants	4,875	49		34,860		-		-		34,909

March 31, 2005		2,652,869	$	26,529	$	25,581,119	$	(63,787)	$	3,116,008	$	28,659,869


December 31, 2005		2,659,719	$	26,597	$	25,626,740	$	(150,602)	$	4,970,012	$	30,472,747

Net income		-	-		-		-		841,904		841,904

Comprehensive income, net of tax -
	Unrealized holding loss on securities
	available for sale	-	-		-		(31,435)		-		(31,435)

Comprehensive income		-	-		-		-		-		810,469

Proceeds from exercise of stock
	options and warrants	4,000	40		26,640		-		-		26,680

March 31, 2006		2,663,719	$	26,637	$	25,653,380	$	(182,037)	$	5,811,916	$	31,309,896

See notes to consolidated financial statements that are an integral part of these consolidated statements.

GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

								For the three months ended
								March 31,
								2006		2005
								(Unaudited)
Operating activities
	Net income							$	841,904	$	660,148
	Adjustments to reconcile net income to cash
				provided by operating activities:
				Provision for loan losses				400,000		345,000
				Depreciation and other amortization				87,447		47,923
				Accretion and amortization of securities discounts and premium, net				24,412		30,268
				(Increase) decrease in deferred tax asset				(510,288)		86,970
				Increase in other assets, net				(211,584)		(221,119)
				Decrease in other liabilities, net				(9,062,785)		(381,968)

							Net cash provided by (used for) operating activities	(8,430,894)		567,222

Investing activities
	Increase (decrease) in cash realized from:
				Origination of loans, net				(28,073,924)		(15,348,815)
				Purchase of property and equipment				(126,969)		(526,427)
				Purchase of investment securities:
					Available for sale			(1,995,000)		-
					Held to maturity			-		(10,258,021)
					Other investments			(1,472,200)		(1,540,700)
				Payments and maturity of investment securities:
						Available for sale		365,501		451,036
						Held to maturity		509,524		750,627
						Other investments		1,215,000		405,000
				Proceeds from sale of real estate acquired in settlement of loans				-		28,000

							Net cash used for investing activities	(29,578,068)		(26,039,300)

Financing activities
		Increase in deposits, net						21,658,802		14,083,420
		Increase (decrease) in short-term borrowings						(448,000)		5,472,180
		Proceeds from the exercise of stock options						26,680		34,909
		Increase (decrease) in Federal Home Loan Bank advances						(500,000)		6,370,000

							Net cash provided by financing activities	20,737,482		25,960,509

							Net increase (decrease) in cash and cash equivalents	(17,271,480)		488,431

Cash and cash equivalents at beginning of the period								25,604,152		5,338,336

Cash and cash equivalents at end of the period								$	8,332,672	$	5,826,767

Supplemental information
	Cash paid for
				Interest				$	3,253,046	$	1,661,080

				Income taxes				$	978,000	$	259,000

Schedule of non-cash transactions
			Foreclosure of real estate					$	1,837,849	$	-

			Unrealized loss on securities, net of income taxes					$	(31,435)	$	(113,776)

See notes to consolidated financial statements that are an integral part of these consolidated statements.

GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Nature of Business and Basis of Presentation

Business activity

Greenville First Bancshares, Inc. is a South Carolina corporation that owns all of the capital stock of Greenville First Bank, N.A. and all of the stock of Greenville First Statutory Trust I and Trust II (collectively the "Trusts"). The bank is a national bank organized under the laws of the United States located in Greenville County, South Carolina. The bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the Federal Deposit Insurance Corporation, and providing commercial, consumer and mortgage loans to the general public. The Trusts are special purpose subsidiaries for the sole purpose of issuing trust preferred securities.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For further information, refer to the consolidated financial statements and footnotes thereto included in the company's Form 10-K for the year ended December 31, 2005 (Registration Number 000-27719) as filed with the Securities and Exchange Commission. The consolidated financial statements include the accounts of Greenville First Bancshares, Inc., and its wholly owned subsidiary Greenville First Bank, N.A. As discussed in Note 2, the financial statements related to the special purpose subsidiary, Greenville First Statutory Trust I and Trust II, have not been consolidated in accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 46.

For purposes of the Consolidated Statements of Cash Flows, cash and federal funds sold are included in "cash and cash equivalents." These assets have contractual maturities of less than three months.

The company has an unused $4.5 million revolving line of credit with another bank that matures on March 20, 2007. The line of credit bears interest at a rate of three-month libor plus 2.00%, which at March 31, 2006 was 7.00%. The company has pledged the stock of the bank as collateral for this line of credit. The line of credit agreement contains various covenants related to net income and asset quality. As of March 31, 2006, the company believes it is in compliance with all covenants.

Note 3 - Earnings per Share

The following schedule reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three months ended March 31, 2006 and 2005. Dilutive common shares arise from the potentially dilutive effect of the company's stock options and warrants that are outstanding. The assumed conversion of stock options and warrants can create a difference between basic and dilutive net income per common share. The average dilutive shares have been computed utilizing the "treasury stock" method.

	Three months ended March 31,
	2006		2005

Basic Earnings Per Share
Average common shares	2,661,136		2,647,994
Net income	$	841,904	$	660,148
Earnings per share	$	0.32	$	0.25

Diluted Earnings Per Share
Average common shares	2,661,136		2,647,994
Average dilutive common shares	289,625		270,278
Adjusted average common shares	2,950,761		2,918,272
Net income	$	841,904	$	660,148
Earnings per share	$	0.29	$	0.23

The company has a stock-based employee compensation plan. On January 1, 2006, the company adopted the fair value recognition provisions of (R), Accounting for Stock-Based Compensation, to account for compensation costs under its stock option plan. The company previously utilized the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (as amended) ("APB 25"). Under the intrinsic value method prescribed by APB 25, no compensation costs were recognized for the company's stock options because the option exercise price in its plans equals the market price on the date of grant. Prior to January 1, 2006, the company only disclosed the pro forma effects on net income and earnings per share as if the fair value recognition provisions of SFAS No. 123(R) had been utilized. On December 20, 2005, the Board of Directors approved accelerating the vesting of 45,813 unvested stock options effective December 28, 2005. The decision to accelerate vesting of these options was made so as to reduce compensation expense upon the adoption of SFAS No. 123(R) by approximately $68,000 and $52,000 in the years ended December 31, 2006 and 2007, respectively, and $4,000 in each of the years ended December 31, 2008 and 2009.

The fair value of the option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for grants: expected volatility of 6.76% for 2006 and 2005, risk-free interest rate of 4.02% for 2006 and 2005, expected lives of the options 10 years, and the assumed dividend rate was zero. No options were granted during the three months ended March 31, 2006.

The following discussion reviews our results of operations and assesses our financial condition. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements. The commentary should be read in conjunction with the discussion of forward-looking statements, the financial statements and the related notes and the other statistical information included in this report.

This report contains "forward-looking statements" relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of management, as well as assumptions made by and information currently available to management. The words "may," "will," "anticipate," "should," "would," "believe," "contemplate," "expect," "estimate," "continue," and "intend," as well as other similar words and expressions of the future, are intended to identify forward-looking statements. Our actual results may differ materially from the results discussed in the forward-looking statements, and our operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in our filings with the Securities and Exchange Commission, including, without limitation:

• significant increases in competitive pressure in the banking and financial services industries;

• changes in the interest rate environment which could reduce anticipated or actual margins;

• changes in political conditions or the legislative or regulatory environment;

• general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality;

• adverse changes in asset quality and resulting credit risk-related losses and expenses;

• loss of consumer confidence and economic disruptions resulting from terrorist activities;

• other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.

We were incorporated in March 1999 to organize and serve as the holding company for Greenville First Bank, N.A. Since we opened our bank in January 2000, we have experienced consistent growth in total assets, loans, deposits, and shareholders' equity, which has continued during the first three months of 2006. To support this growth, we conducted an underwritten public offering of our common stock in September and October 2004. On September 24, 2004 and October 15, 2004, we sold 800,000 and 120,000 shares, respectively, of common stock. The net proceeds from this offering were approximately $15.0 million.

Like most community banks, we derive the majority of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread.

There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We maintain this allowance by charging a provision for loan losses against our operating earnings for each period. We have included a detailed discussion of this process, as well as several tables describing our allowance for loan losses.

In addition to earning interest on our loans and investments, we earn income through fees and other charges to our customers. We have also included a discussion of the various components of this noninterest income, as well as of our noninterest expense.

The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with our financial statements and the other statistical information included in our filings with the Securities and Exchange Commission.

Critical Accounting Policies

Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

We believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements. Some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers, the estimated value of the underlying collateral, the assumptions about cash flow, determination of loss factors for estimating credit losses, the impact of current events, and conditions, and other factors impacting the level of probable inherent losses. Under different conditions, the actual amount of credit losses incurred by us may be different from management's estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses.

Beginning in July of 2004 and through the first three months of 2006, our short-term or variable rate interest-bearing liabilities increased as the Federal Reserve began to increase short-term rates as the economy showed signs of strengthening following an economic decline and historically low interest rates. During this period, the Federal Reserve increased rates 15 times for a total of 375 basis points. Two of these rate increases occurred during the first quarter of 2006 for a total of 50 basis points. Many economists believe that the Federal Reserve will continue to increase rates during 2006. The following discussion includes our analysis of the effect we anticipate these rising interest rates will have on our financial condition. However, no assurance can be given that the Federal Reserve will actually continue to raise interest rates or that the results we anticipate will actually occur.

Our net income was $841,904 and $660,148 for the three months ended March 31, 2006 and 2005, respectively, an increase of $181,756, or 27.5%. The $181,756 increase in net income resulted primarily from an increase of $679,213 in net interest income which was
partially offset by an increase of $55,000 in the provision for loan losses, a decrease of $57,800 in noninterest income, $305,333 of additional noninterest expense and a $79,324 increase in income tax expense. Our efficiency ratio has continued to improve because our net interest income and other income continue to increase at a higher rate than the increases in our overhead expenses. Our efficiency ratio was 50.9% and 51.3% for the three months ended March 31, 2006 and 2005, respectively.

Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. The continuous growth in our loan portfolio is the primary driver of the increase in net interest income. During the three months ended March 31, 2006, our average loan portfolio increased $63.8 million compared to the average for the three months ended March 31, 2005. The growth in the first three months of 2006 was $25.9 million. We anticipate the growth in loans will continue to drive the growth in assets and the growth in net interest income. However, no assurance can be given that we will be able to continue to increase loans at the same levels we have experienced in the past.

Our decision to grow the loan portfolio at the current pace created the need for a higher level of capital and the need to increase deposits and borrowings. This loan growth strategy also resulted in a significant portion of our assets being in higher earning loans than in lower yielding investments. At March 31, 2006, net loans represented 86.1% of total assets, while investments and federal funds sold represented 9.6% of total assets. While we plan to continue our focus on increasing the loan portfolio, as rates on investment securities begin to rise and additional deposits are obtained, we also anticipate increasing the size of the investment portfolio.

The historically low interest rate environment in the last three years allowed us to obtain short-term borrowings and wholesale certificates of deposit at rates that were lower than certificate of deposit rates being offered in our local market. Therefore, we decided not to begin our retail deposit office expansion program until the beginning of 2005. This funding strategy allowed us to continue to operate in one location until 2005, maintain a smaller staff, and not incur marketing costs to advertise deposit rates, which in turn allowed us to focus on the fast growing loan portfolio. At March 31, 2006, retail deposits represented $206.4 million, or 49.4% of total assets, borrowings represented $106.6 million, or 25.5% of total assets, and wholesale out-of-market deposits represented $69.4 million, or 16.6% of total assets.

In anticipation of rising interest rates, we opened one retail deposit office in March of 2005 and a second in November of 2005. We plan to focus our efforts in these two locations to obtain low cost transaction accounts that are less affected by rising rates. Our goal is to increase both the percentage of assets being funded by "in market" retail deposits and to increase the percentage of low-cost transaction accounts to total deposits. No assurance can be given that these objectives will be achieved; however, we anticipate that the two additional retail deposit offices will assist us in meeting these objectives. We also anticipate the deposit promotions and the opening of the two new offices will continue to have a negative impact on earnings in the year 2006. However, we believe that these two strategies will provide additional clients in our local market and will provide a lower alternative cost of funding in a higher or rising interest rate environment, which we believe will increase earnings in future periods.

As more fully discussed in the - "Market Risk" and - "Liquidity and Interest Rate Sensitivity" sections below, at March 31, 2006, 56.7% of our loans had variable rates. Given our high percentage of rate-sensitive loans, our primary focus during the past three years has been to obtain short-term liabilities to fund our asset growth. This strategy improves our ability to manage the impact on our earnings resulting from anticipated increases in market interest rates.

At March 31, 2006, 76.7% of interest-bearing liabilities had a maturity of less than one year. Therefore, we believe that we are positioned to benefit from future increases in short-term rates. At March 31, 2006, we had $12.9 million more assets than liabilities that reprice within the next three months.

We intend to maintain a capital level for the bank that exceeds the OCC requirements to be classified as a "well capitalized" bank. To provide the additional capital needed to support our bank's growth in assets, in 2003 we issued $6.2 million in junior subordinated debentures in connection with our trust preferred securities offering. During 2004, we issued 920,000 additional shares of common stock that resulted in $14.9 million of additional capital. In 2005, we issued an additional $7.2 million in junior subordinated debentures in a second trust preferred securities offering. The company also has a $4.5 million unused short-term holding company line of credit that could be utilized to provide additional capital for the bank if deemed necessary. As of March 31, 2006, the company's regulatory capital levels were over $14.4 million in excess of the various well capitalized requirements.

In addition to the growth in both assets and liabilities, and the timing of repricing of our assets and liabilities, net interest income is also affected by the ratio of interest-earning assets to interest-bearing liabilities and the changes in interest rates earned on our assets and interest rates paid on our liabilities.

Our net interest income margin for the three months ended March 31, 2006, exceeded our net interest spread because we had more interest-earning assets than interest-bearing liabilities. Average interest-earning assets exceeded average interest-bearing liabilities by $46.5 million, and $41.4 million for the three months ended March 31, 2006 and 2005, respectively.

During the three months ended March 31, 2006, our rates on both short-term or variable rate earning-assets and short-term or variable rate interest-bearing liabilities continued to increase primarily as a result of the actions taken by the Federal Reserve over the last twelve months to raise short-term rates. The impact of the Federal Reserve's actions resulted in an increase in both the yields on our variable rate assets and the rates that we paid for our short-term deposits and borrowings. Our net interest spread increased slightly since more of our rate sensitive assets repriced sooner than our rate sensitive liabilities during the 12 month period ending March 31, 2006. We have chosen to limit our exposure to changes in short-term rates by increasing the amount of fixed rate loans in our loan portfolio and targeting to have a significant portion of our liabilities to reprice within a twelve month period.

Our net interest spread for the three months ended March 31, 2006 was 3.03%. Because we had more interest-earning assets than interest-bearing liabilities that repriced, our net interest spread increased 3 basis points in the three months ended March 31, 2006, compared to the same period in 2005.

For the three months ended March 31, 2006, our net interest margin was 3.48%. The change in our net interest margin was 11 basis points higher than the change in net interest spread for the three month period ended March 31, 2006 when compared to the same period in 2005. The additional 11 basis points resulted primarily because our interest-earning assets exceeded interest-bearing liabilities by $46.5 million for the three month period ended March 31, 2006, compared to $41.4 million for the same period in 2005.

We have included a number of tables to assist in our description of various measures of our financial performance. For example, the "Average Balances" table shows the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during the three months ended March 31, 2006 and 2005. A review of this table shows that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial percentage of our earning assets into our loan portfolio. Similarly, the "Rate/Volume Analysis" table demonstrates the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. A review of these tables shows that as short-term rates continue to rise, the increase in net interest income is more effected by the changes in rates than in prior years. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts. Finally, we have included various tables that provide detail about our investment securities, our loans, our deposits, and other borrowings.

The following table sets forth information related to our average balance sheets, average yields on assets, and average costs of liabilities. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. During the three month periods ended March 31, 2006 and 2005, we had no interest-bearing deposits in other banks or any securities purchased with agreements to resell. All investments were owned at an original maturity of over one year. Nonaccrual loans are included in the following tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. The net of capitalized loan costs and fees are amortized into interest income on loans.

			Average Balances, Income and Expenses, and Rates
			For the Three Months Ended March 31,
			2006						2005
			Average			Income/	Yield/		Average		Income/		Yield/
			Balance			Expense	Rate(1)		Balance		Expense		Rate(1)
			(Dollars in thousands)
Earnings
	Fed funds sold		$	3,888	$	48	5,01%	$	994	$		6		2.45%
	Investment securities			35,781		432	4.90%		36,740			405		4.47%
	Loans			351,727		6,146	7.09%		287,928			4,171		5.87%
	Total earning-assets			391,396		6,626	6.87%		325,662			4,582		5.71%
	Non-earning assets			10,745					5,331
	Total assets			402,141					330,993
Interest-bearing liabilities
	NOW accounts			32,983		147	1.81%		29,750			101		1.38%
	Savings & money market			60,071		428	2.89%		49,666			196		1.60%
	Time deposits			147,761		1,538	4.22%		107,991			858		3.22%
	Total interest-bearing deposits			240,815		2,113	3.56%		187,407			1,155		2.50%
	FHLB advances			75,594		753	4.04%		72,170			537		3.02%
	Other borrowings			28,465		400	5.70%		24,721			210		3.45%
	Total interest-bearing liabilities			344,874		3,266	3.84%		284,298			1,902		2.71%
	Non-interest bearing liabilities			26,007					18,434
Shareholders' equity				31,260					28,261
		Total liabilities and shareholders' equity	$	402,141				$	330,993
Net interest spread							3.03%							3.00%
Net interest income / margin					$	3,360	3.48%			$		2,680		3.34%

(1) Annualized for the three month period.

Our net interest spread was 3.03% for the three months ended March 31, 2006, compared to 3.00% for the three months ended March 31, 2005. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities.

Our net interest margin is calculated as net interest income divided by average interest-earning assets. Our net interest margin for the three months ended March 31, 2006 was 3.48%, compared to 3.34% for the three months ended March 31, 2006. During the three months ended March 31, 2006, interest-earning assets averaged $391.4 million, compared to $325.7 million in the three months ended March 31, 2005. Interest earning assets exceeded interest bearing liabilities by $46.5 million and $41.4 million for the three month periods ended March 31, 2006 and 2005, respectively.

Our loan yield increased 122 basis points for the three months ended March 31, 2006 compared to the three months ended March 31, 2005 as a result of approximately 57% of the loan portfolio having variable rates, combined with the increase in prime rates over the twelve months ended March 31, 2006. Offsetting the increase in our loan yield is a 106 basis point increase in the cost of our interest-bearing deposits for the first quarter of 2006 compared to the same period in 2005. The increase in the rate on our time deposits is due to the renewal rates on time deposits being much higher than the original rates due to the number of increases in the prime rate in the past twenty-one months. In addition, the cost of our savings and money market accounts has increased by 129 basis points as we have increased the rates we offer on these products in relation to the increase in short-term market rates to stay competitive. The 102 basis point increase in FHLB advances and the 225 basis point increase in other borrowed funds in the first quarter of 2006 compared to the same period in 2005 resulted primarily from the impact of the 200 basis point increase in short-term market rates over the past twelve months. As of March 31, 2006, approximately 46% of our FHLB advances had variable rates, while all of our other borrowings had variable rates.

Net interest income, the largest component of our income, was $3.4 million and $2.7 million for the three months ended March 31, 2006 and 2005, respectively. The significant increase in the first quarter of 2006 related to higher levels of both average earning assets and interest-bearing liabilities. Average earning assets were $65.7 million higher during the three months ended March 31, 2006 compared to the same period in 2005.

The $679,213 increase in net interest income for the three months ended March 31, 2006 compared to the same period in 2005 resulted primarily from a $534,000 increase in net interest income related to the impact of higher average earning assets and interest-bearing liabilities in the three months ended March 31, 2006 compared to the same period in 2005. The remaining increase is largely a result of the impact of higher interest rates on both interest-earning assets and interest-bearing liabilities.

Interest income for the three months ended March 31, 2006 was $6.6 million, consisting of $6.1 million on loans, $431,690 on investments, and $48,391 on federal funds sold. Interest income for the three months ended March 31, 2005 was $4.6 million, consisting of $4.2 million on loans, $405,090 on investments, and $5,811on federal funds sold. Interest on loans for the three months ended March 31, 2006 and 2005 represented 92.8% and 91.0%, respectively, of total interest income, while income from investments and federal funds sold represented only 7.2% and 9.0% of total interest income. The high percentage of interest income from loans relates to our strategy to maintain a significant portion of our assets in higher earning loans compared to lower yielding investments. Average loans represented 89.9% and 88.4% of average interest-earning assets for the three months ended March 31, 2006 and 2005, respectively. Included in interest income on loans for the three months ended March 31, 2006 and 2005 was $140,197 and $118,797, respectively, related to the net amortization of loan fees and capitalized loan origination costs.

Interest expense for the three months ended March 31, 2006 was $3.3 million, consisting of $2.1 million related to deposits and $1.2 million related to borrowings. Interest expense for the three months ended March 31, 2005 was $1.9 million, consisting of $1.2 million related to deposits and $746,886 related to borrowings. Interest expense on deposits for the three months ended March 31, 2006 and 2005 represented 64.7% and 60.7%, respectively, of total interest expense, while interest expense on borrowings represented 35.3% and 39.3%, respectively, of total interest expense for the same three month periods. During the three months ended March 31, 2006, average interest-bearing deposits increased by $53.4 million over the same period in 2005, while FHLB and other borrowing during the three months ended March 31, 2006 increased $7.2 million over the same period in 2005. Both the short-term borrowings from the FHLB and the sale of securities under agreements to repurchase provide us with the opportunity to obtain low cost funding with various maturities similar to the maturities on our loans and investments.

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following table sets forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented.

		Three Months Ended
		March 31, 2006 vs. 2005								March 31, 2005 vs. 2004
		Increase (Decrease) Due to								Increase (Decrease) Due to
		Volume		Rate		Rate/ Volume		Total		Volume		Rate		Rate/ Volume		Total
		Volume		Rate		Rate/ Volume		Total		Volume		Rate		Rate/ Volume		Total
		(Dollars in thousands)
Interest income
Loans	$	920	$	857	$	198	$	1,975	$	877	$	419	$	137	$	1,433
Investment securities		(11)		39		(1)		27		178		2		1		181
Federal funds sold		17		6		19		42		(3)		8		(4)		1
Total interest income		926		902		216		2,044		1,052		429		134		1,615

Interest expense
Deposits		335		479		144		958		150		228		49		427
FHLB advances		25		183		9		217		126		130		84		340
Other borrowings		32		137		21		190		26		60		15		101
Total interest expense		392		799		174		1,365		302		418		148		868

Net interest income	$	534	$	103	$	42	$	679	$	750	$	11	$	(14)	$	747

Provision for Loan Losses

We have established an allowance for loan losses through a provision for loan losses charged as an expense on our statement of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses. Please see the discussion below under "Balance Sheet Review - Provision and Allowance for Loan Losses" for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

For the three months ended March 31, 2006 and 2005, there was a noncash expense related to the provision for loan losses of $400,000 and $345,000, respectively. The additional provision which was partially offset by net loans charged-off added to our allowance for loan losses in the three months ended March 31, 2006and 2005. The net increase in the allowance for loan losses was $25,616 and $356,793 for the three months ended March 31, 2006 and 2005, respectively. The allowance for loan losses increased less than the provision for loan losses in the three months ended March 31, 2006 because we reported net charge-offs of $374,384 in the three month period. The $374,384 net charge-offs during the first quarter of 2006 represented 0.11% of the average outstanding loan portfolio for the three months ended March 31, 2006. The allowance for loan losses at March 31, 2005 increased more than the amount of the provision for loan losses as a result of a $11,793 recovery combined with no charge-offs in the three month period. The $25,616 and the $356,793 increases in the allowance for the three months ended March 31, 2006 and 2005, respectively, related to our decision to increase the allowance in response to the $25.9 million and the $15.4 million growth in loans for the three months ended March 31, 2006 and 2005, respectively.

During the first quarter of 2006, the decision was made not to increase the reserve at the same level as loan growth due to the amount of coverage we had against non-performing and charged-off loans. At March 31, 2006, the allowance represented 4.2 times the amount of non-performing loans compared to 3.6 times at March 31, 2005. In addition, the allowance represented 3.0 times the annualized charge-off amount at March 31, 2006, while there were no charge-offs at March 31, 2005. Also, late in the quarter, we charged-off $340,000 related to a group of loans with a common interest. This group of loans is secured by diversified real estate or vehicles. The loan loss reserve was $4.5 million and $4.1 million as of March 31, 2006 and 2005, respectively. The allowance for loan losses as a percentage of gross loans was 1.24% at March 31, 2006 and 1.38% at March 31, 2005, while the percentage of nonperforming loans to gross loans was 0.80% and 0.34% at March 31, 2006 and 2005, respectively.

Noninterest income in the three month period ended March 31, 2006 was $155,575, a decrease of 27.1% over noninterest income of $213,375 in the same period of 2005.

Loan fee income consists primarily of late charge fees, fees from issuance of letters of credit and mortgage origination fees we receive on residential loans funded and closed by a third party. Loan fees were $30,801 and $46,624 for the three months ended March 31, 2006 and 2005, respectively. The $15,823 decrease for the three months ended March 31, 2006 compared to the same period in 2005 related primarily to a $7,009 reduction in mortgage origination fees and a $12,513 decrease in fees received from the issuance of letters of credit which were offset by a $3,699 increase in late charge fees. Mortgage origination fees were $2,885 and $9,893 for the three months ended March 31, 2006 and 2005, respectively, while income related to amortization of fees on letters of credit was $8,591 and $21,104 for the first quarter of 2006 and 2005, respectively. Late charge fees were $19,325 and $15,626 for the three months ended March 31, 2006 and 2005, respectively.

Service fees on deposits consist primarily of income from NSF fees and service charges on transaction accounts. Service fees on deposits were $62,071 and $73,537 for the three months ended March 31, 2006 and 2005, respectively. While the number of client accounts continues to grow, the $11,466 decrease is primarily related to the amount of NSF fees collected in the first quarter of 2006 compared to the same period in 2005. NSF income was $36,925 and $45,123 for the three months ended March 31, 2006 and 2005, respectively, representing 59.5% of total service fees on deposits in the 2006 period compared to 61.4% of total service fees on deposits in the 2005 period. In addition, service charges on deposit accounts decreased to $21,736 for the three months ended March 31, 2006 compared to $24,698 for the same period ended March 31, 2005. The lower service charges are a result of an increase in the earnings credit paid on business checking accounts which offsets the service fees that would have been charged on these accounts.

Other income consisted primarily of fees received on debit card transactions and sale of customer checks. Other income was $62,703 and $93,214 for the three months ended March 31, 2006 and 2005, respectively. A significant portion of the $30,511 decrease is related to a change in merchant service providers whereby we now receive a net fee related to the service provided to our merchant clients. In prior years, we received a substantially higher fee, but also incurred transaction costs. Debit card transaction fees were $31,607 and $79,125 for the three months ended March 31, 2006 and 2005, respectively and represented 50.4% and 84.9% of total other income for the first quarters of 2006 and 2005, respectively. The corresponding transaction costs associated with debit card transactions are included in noninterest outside service expense. The debit card transaction costs were $23,198 and $64,642 for the three months ended March 31, 2006 and 2005, respectively. The net impact of the fees received and the related cost of the debit card transactions on earnings for the three months ended March 31, 2006 and 2006 was $8,409 and $14,483, respectively.

We incurred noninterest expenses of $1.8 million for the three months ended March 31, 2006 compared to $1.5 million for the three months ended March 31, 2005. Average interest-earning assets increased 20.2% during this period, while general and administrative expense increased 20.6%.

For the three months ended March 31, 2006 compensation and benefits, occupancy, and data processing and related costs represented 78.6% of the total noninterest expense compared to 79.2% for the same period in 2005.

The following table sets forth information related to our compensation and benefits.

Compensation and benefits expense was $1,033,741 and $794,793 for the three months ended March 31, 2006 and 2005, respectively. Compensation and benefits represented 57.8% and 53.5% of our total noninterest expense for the three months March 31, 2006 and 2005, respectively. The $238,948 increase in compensation and benefits in the first quarter of 2006 compared to the same period in 2005 resulted from increases of $188,267 in base compensation, $11,500 in additional incentive compensation, and $47,991 higher benefits expense. These amounts were partly offset by an increase of $8,810 in loan origination compensation expense, which is required to be capitalized and amortized over the life of the loan as a reduction of loan interest income.

The $188,267 increase in base compensation expense related to the cost of 16 additional employees as well as annual salary increases. Ten of the new employees relate to the staff that was hired for the new retail offices that opened in the first and third quarters of 2005. The remaining six employees were hired primarily to support the growth in both loans and deposit operations. Incentive compensation represented 13.7% and 16.4 % of total compensation and benefits for the three months ended March 31, 2006 and 2005, respectively. The incentive compensation expense recorded for the first quarter of 2006 and 2005 represented an accrual of the portion of the estimated incentive compensation earned during the first quarter of the respective year. Benefits expense increased $47,991 in the first quarter of 2006 compared to the same period in 2005. Benefits expense represented 23.8% and 23.7% of the total compensation for the three months ended March 31, 2006 and 2005, respectively.

The following tables set forth information related to our data processing and related costs.

Data processing and related costs were $197,870 and $215,208 for the three months ended March 31, 2006 and 2005, respectively.

During the three months ended March 31, 2006, our data processing costs for our core processing system were $127,086 compared to $112,373 for the three months ended March 31, 2005. We have contracted with an outside computer service company to provide our core data processing services.

Data processing costs increased $14,713, or 13.1%, for the three months ended March 31, 2006 compared to the same period in 2005. The increases in costs were caused by the higher number of loan and deposit accounts. A significant portion of the fee charged by the third party processor is directly related to the number of loan and deposit accounts and the related number of transactions.

We receive income from debit card transactions performed by our clients. Since we outsource this service, we are charged related transaction expenses from our merchant service provider. Debit card transaction expense was $23,198 and $64,642 for the three months ended March 31, 2006 and 2005, respectively. The decrease of $41,444 relates primarily to a change in merchant service card providers, whereby we now receive net fee income related to the service provided to our merchant clients. In prior years, we received a substantially higher fee, but also incurred a higher transaction cost.

Occupancy expense, which represented 9.8% and 11.2% of total noninterest expense for the three months ended March 31, 2006 and 2005, respectively, increased only $9,052, in spite of the addition of two new retail offices. Occupancy expense was $174,777 and $165,725 for the three months ended March 31, 2006 and 2005, respectively. The increase due to the additional costs of the two new retail offices was largely offset because we purchased our main retail office and headquarter building at the end of 2005. The depreciation expense related to our main office and headquarter building is significantly less than the rent expense paid in prior years.

The remaining $74,671 increase in noninterest expense for the three month period March 31, 2006 compared to the same period in 2005, resulted primarily from a $48,290 increase in marketing expenses and an additional $12,194 in professional fees. The increase in marketing expenses relates to expanding our market awareness in the Greenville market, while the additional professional fees relates primarily to additional legal and accounting fees related to SEC reporting requirements and the overall growth of our company. A significant portion of the increase in other expenses was due to increased costs of postage and office supplies, additional staff education and training, and higher dues and subscription costs.

Income tax expense was $483,930 for the three months ended March 31, 2006 compared to $404,606 during the same period in 2005. The increase related to the higher level of income before taxes.

At March 31, 2006, we had total assets of $417.8 million, consisting principally of $359.9 million in loans, $37.4 million in investments, $2.8 million in federal funds sold, and $5.5 million in cash and due from banks. Our liabilities at March 31, 2006 totaled $386.5 million, which consisted principally of $275.8 million in deposits, $79.0 million in FHLB advances, $14.2 million in short-term borrowings, $2.1 million of official checks outstanding, and $13.4 million in junior subordinated debentures. At March 31, 2006, our shareholders' equity was $31.3 million.

At December 31, 2005, we had total assets of $405.3 million, consisting principally of $334.0 million in loans, $36.1 million in investments, $19.4 million in federal funds sold, and $6.2 million in cash and due from banks. Our liabilities at December 31, 2005 totaled $374.8 million, consisting principally of $254.1 million in deposits, $79.5 million in FHLB advances, $14.7 million of short-term borrowings, $7.8 million of official checks outstanding, and $13.4 million of junior subordinated debentures. At December 31, 2005, our shareholders' equity was $30.5 million.

At March 31, 2006, our federal funds sold were $2.8 million, or 0.7% of total assets. At December 31, 2005, our $19.4 million in short-term investments in federal funds sold on an overnight basis comprised 4.8% of total assets. Due to the large amount of official checks outstanding, our federal funds sold were higher than normal at December 31, 2005.

Contractual maturities and yields on our investments that are available for sale and are held to maturity at March 31, 2006 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Less than One Year			One to Five Years			Five to Ten Years			Over Ten Years			Total
		Amount	Yield		Amount	Yield		Amount	Yield		Amount	Yield		Amount	Yield
		(Dollars in thousands)

Available for Sale
Federal agencies	$	1,006	5.48 %	$	1,982	5.06%	$	-	-	$	-	-	$	2,988	5.20 %
State and political subdivisions		-	-		-	-		-	-		1,276	3.83 %		1,276	3.83 %
Mortgage-backed securities		-	-		-	-		1,094	4.64 %		7,522	4.53 %		8,616	4.55 %
Total	$	1,006	5.48 %	$	1,982	5.06%	$	1,094	4.64 %	$	8,798	4.43 %	$	12,880	4.63 %

Held to Maturity
Mortgage-backed securities	$	-	-	$	-	-		538	3.82 %	$	18,286	4.61 %	$	18,824	4.59 %

At March 31, 2006, our investments included securities issued by Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association with carrying values of $1.0 million, $5.9 million, and $23.5 million, respectively.

The amortized costs and the fair value of our investments at March 31, 2006 and December 31, 2005 are shown in the following table.

		March 31, 2006				December 31, 2005
		Amortized		Fair		Amortized		Fair
		Cost		Value		Cost		Value
		(Dollars in thousands)
Available for Sale
Federal agencies	$	2,998	$	2,988	$	1,005	$		1,012
State and political subdivisions		1,292		1,276		1,292			1,292
Mortgage-backed securities		8,866		8,616		9,242			9,007
Total	$	13,156	$	12,880	$	11,539	$		11,311

Held to Maturity
Mortgage-backed securities	$	18,824	$	18,192	$	19,345	$		18,709

Other investments totaled $5.7 million at March 31, 2006 and consisted of Federal Reserve Bank stock with a cost of $968,700, investments in Greenville First Statutory Trust I and Trust II of $186,000 and $217,000, respectively, and Federal Home Loan Bank stock with a cost of $4.4 million.

At March 31, 2006, we had $37.4 million in our investment securities portfolio which represented approximately 9.0% of our total assets. We held U.S. Government agency securities, municipal securities, and mortgage-backed securities with a fair value of $31.1 million and an amortized cost of $32.0 million for an unrealized loss of $908,290. We believe, based on industry analyst reports and credit ratings that the deterioration in value is attributed to changes in market interest rates and not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary. We have the ability and intent to hold these securities until such time as the value recovers or the securities mature.

At December 31, 2005, the $36.1 million in our investment securities portfolio represented approximately 8.9% of our total assets. We held U.S. Government agency securities, municipal securities, and mortgage-backed securities with a fair value of $30.0 million and an amortized cost of $30.9 million for an unrealized loss of $864,088. As a result of the strong growth in our loan portfolio and the historical low fixed rates that were available during the last two and one-half years, we have maintained a lower than normal level of investments. As rates on investment securities rise and additional capital and deposits are obtained, we anticipate increasing the size of the investment portfolio.

Contractual maturities and yields on our available for sale and held to maturity investments at December 31, 2005 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 2005, we had no securities with a maturity of one to five years.

		Less than One Year			Five to Ten Years			Over Ten Years			Total
		Amount	Yield		Amount	Yield		Amount	Yield		Amount	Yield
		(Dollars in thousands)

Available for Sale
Federal agencies	$	1,012	5.49 %	$	-	-	$	-	-	$	1,012	5.49 %
State and political subdivisions		-	-		-	-		1,292	4.00 %		1,292	4.00 %
Mortgage-backed securities		-	-		1,186	4.64 %		7,821	4.42 %		9,007	4.44 %
Total	$	1,012	5.49 %	$	1,186	4.64 %	$	9,113	4.36 %	$	11,311	4.49 %

Held to Maturity
Mortgage-backed securities	$	-	-	$	576	3.78 %	$	18,769	4.55 %	$	19,345	4.53 %

At December 31, 2005, our investments included securities issued by Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association with carrying values of $1.1 million, $4.1 million, and $24.3 million, respectively.

Other investments totaled $5.5 million at December 31, 2005. Other investments at December 31, 2005 consisted of Federal Reserve Bank stock with a cost of $863,700, investments in Greenville First Statutory Trust I and II of $186,000 and $217,000, respectively, and Federal Home Loan Bank stock with a cost of $4.2 million.

Since loans typically provide higher interest yields than other types of interest earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. For the three months ended March 31, 2006 and 2005, average loans were $351.7 million and $287.9 million, respectively. Before the allowance for loan losses, total loans outstanding at March 31, 2006 were $364.4 million. Average loans for the year ended December 31, 2005 were $310.3 million. Before the allowance for loan losses, total loans outstanding at December 31, 2005 were $338.5 million.

The principal component of our loan portfolio is loans secured by real estate mortgages. Most of our real estate loans are secured by residential or commercial property. We do not generally originate traditional long term residential mortgages, but we do issue traditional second mortgage residential real estate loans and home equity lines of credit. We obtain a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans we make to 80%. Due to the short time our portfolio has existed, the current mix may not be indicative of the ongoing portfolio mix. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral.

The following table summarizes the composition of our loan portfolio March 31, 2006 and December 31, 2005.

		March 31, 2006			December 31, 2005
		Amount	% of Total		Amount	% of Total
Real estate:		(Dollars in thousands)
Commercial:
Owner occupied	$	71,997	19.8 %	$	72,222	21.3 %
Non-owner occupied		107,099	29.4 %		96,950	28.7 %
Construction		19,354	5.3 %		14,661	4.3 %
Total commercial real estate		198,450	54.5 %		183,833	54.3 %
Consumer:
Residential		55,148	15.1 %		50,756	15.0 %
Home equity		36,635	10.0 %		37,254	11.0 %
Construction		4,993	1.4 %		5,409	1.6 %
Total consumer real estate		96,776	26.5 %		93,419	27.6 %
Total real estate		295,226	81.0 %		277,252	81.9 %
Commercial business		63,166	17.3 %		53,753	15.9 %
Consumer-other		6,755	1.9 %		8,211	2.4 %
Deferred origination fees, net		(755)	(0.2)%		(685)	(0.2)%
Total gross loans, net of
deferred fees		364,392	100.0 %		338,531	100.0 %
Less-allowance for loan losses		(4,515)			(4,490)
Total loans, net	$	359,877		$	334,041

The information in the following tables is based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties.

The following table summarizes the loan maturity distribution by type and related interest rate characteristics at March 31, 2006.

				After one but within five years
		One year or less				After five years
		One year or less				After five years		Total
				(Dollars in thousands)

Real estate - mortgage	$	50,887	$	181,077	$	38,915	$	270,879
Real estate - construction		10,378		9,466		4,503		24,347
Total real estate		61,265		190,543		43,418		295,226

Commercial business		33,779		26,194		3,193		63,166
Consumer-other		3,923		2,510		322		6,755
Deferred origination fees, net		(199)		(443)		(113)		(755)
Total gross loans, net of deferred fees	$	98,768	$	218,804	$	46,820	$	364,392
Loans maturing after one year with:
Fixed interest rates							$	115,042
Floating interest rates							$	150,582

The following table summarizes the loan maturity distribution by type and related interest rate characteristics at December 31, 2005.

				After one but within five years
		One year or less				After five years
		One year or less				After five years		Total
	(Dollars in thousands)

Real estate - mortgage	$	48,762	$	173,373	$	35,047	$	257,182
Real estate - construction		9,359		6,708		4,003		20,070
Total real estate		58,121		180,081		39,050		277,252

Commercial business		31,849		21,564		340		53,753
Consumer - other		4,210		3,689		312		8,211
Deferred origination fees, net		(188)		(399)		(98)		(685)
Total gross loans, net of deferred fees	$	93,992	$	204,935	$	39,604	$	338,531
Loans maturing after one year with:
Fixed interest rates							$	95,346
Floating interest rates							$	149,193

We have established an allowance for loan losses through a provision for loan losses charged to expense on our statement of income. The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses is based on evaluations of the collectibility of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrower's ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans. We also consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits, changes in volume/severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons. Due to our limited operating history, the provision for loan losses has been made primarily as a result of our assessment of general loan loss risk compared to banks of similar size and maturity. Due to the rapid growth of our bank over the past several years and our short operating history, a large portion of the loans in our loan portfolio and of our lending relationships are of relatively recent origin. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process known as seasoning. As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio. Because our loan portfolio is relatively new, the current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which may be higher than current levels. If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition. Periodically, we adjust the amount of the allowance based on changing circumstances. We charge recognized losses to the allowance and add subsequent recoveries back to the allowance for loan losses. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period.

The following table summarizes the activity related to our allowance for loan losses for the three months ended March 31, 2006 and 2005:

We do not allocate the allowance for loan losses to specific categories of loans. Instead, we evaluate the adequacy of the allowance for loan losses on an overall portfolio basis utilizing our credit grading system which we apply to each loan. We have retained an independent consultant to review the loan files on a test basis to confirm the grading of our loans.

The following table shows the nonperforming assets, percentages of net charge-offs, and the related percentage of allowance for loan losses for the three months ended March 31, 2006 and the year ended December 31, 2005. All loans over 90 days past due are on and included in loans on nonaccrual.

The allowance for loan losses was $4.5 million at both March 31, 2006 and December 31, 2005, or 1.24% and 1.33% of outstanding loans, respectively. During the year ended December 31, 2005, we had net charged off loans of $227,048. During the three months ended March 31, 2006 we had net charge-offs of $374,384, and a net recovery of $11,793 for the same period in 2005. Late in the first quarter of 2006, we charged-off $340,000 related to a group of loans with a common interest. This group of loans is secured by diversified real estate or vehicles.

At March 31, 2006 and December 31, 2005, nonaccrual loans represented 0.30% and 0.14% of total loans, respectively. At March 31, 2006 and December 31, 2005, we had $1.1 million and $466,333 of loans, respectively, on nonaccrual status. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as income when received.

The amount of foregone interest income on the nonaccrual loans in the first three months of 2006 was approximately $12,000. The amount of interest income recorded in the first three months of 2006 for loans that were on nonaccrual at March 31, 2006 was $0.

Our primary source of funds for loans and investments is our deposits, advances from the FHLB, and short-term repurchase agreements. National and local market trends over the past several years suggest that consumers have moved an increasing percentage of discretionary savings funds into investments such as annuities, stocks, and fixed income mutual funds. Accordingly, it has become more difficult to attract deposits. We have chosen to obtain a portion of our certificates of deposits from areas outside of our market. The deposits obtained outside of our market area generally have comparable rates compared to rates being offered for certificates of deposits in our local market. We also utilize out-of-market deposits in certain instances to obtain longer-term deposits than are readily available in our local market. We anticipate that the amount of out-of-market deposits will continue to decline as our new retail deposit offices become established. The amount of out-of-market deposits was $81.4 million at December 31, 2005 and $69.4 at March 31, 2006.

We anticipate being able to either renew or replace these out-of-market deposits when they mature, although we may not be able to replace them with deposits with the same terms or rates. Our loan-to-deposit ratio was 132% and 133% at March 31, 2006 and December 31, 2005, respectively.

The following table shows the average balance amounts and the average rates paid on deposits held by us for the three months ended March 31, 2006 and 2005.

		2006			2005
		Amount	Rate		Amount	Rate
		(Dollars in thousands)

Noninterest bearing demand deposits	$	21,891	- %	$	15,978	- %
Interest bearing demand deposits		32,983	1.81 %		29,750	1.38 %
Money market accounts		58,732	2.95 %		48,367	1.63 %
Saving accounts		1,339	0.41 %		1,298	0.35 %
Time deposits less than $100,000		30,525	3.70 %		22,867	3.23 %
Time deposits greater than $100,000		117,236	4.36 %		85,124	3.22 %
Total deposits	$	262,706	3.26 %	$	203,384	2.30 %

The increase in time deposits of $100,000 or more for the three months ended March 31, 2006 resulted from an increase in retail time deposits which was offset by a decrease in wholesale deposits. A significant portion of the increase in retail time deposits is attributed to the addition of our two new retail branch offices.

Core deposits, which exclude out-of-market deposits and time deposits of $100,000 or more, provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $163.0 million and $136.5 million at March 31, 2006 and December 31, 2005, respectively.

All of our time deposits are certificates of deposits. The maturity distribution of our time deposits of $100,000 or more at March 31, 2006 (in thousands) was as follows:

Total shareholders' equity at March 31, 2006 was $31.3 million. At December 31, 2005, total shareholders' equity was $30.5 million. The increase during the first three months of 2006 resulted primarily from the $841,904 of net income earned.

The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), and equity to assets ratio (average equity divided by average total assets) for the three months ended March 31, 2006 and the year ended December 31, 2005. Since our inception, we have not paid cash dividends.

Our return on average assets was .85% for the three months ended March 31, 2006, an increase from .70% for the year ended December 31, 2005. In addition, our return on average equity increased to 10.92% from 8.44% for the first quarter ended March 31, 2006 and the year ended December 31, 2005, respectively. The lower returns for the year ended December 31, 2005 relate to the one-time impairment charge that occurred in the late 2005. The decrease in the equity to assets ratio from December 31, 2005 is a function of the $45.1 million increase in average assets compared to the $1.4 million increase in average equity.

The Federal Reserve guidelines contain an exemption from the capital requirements for "small bank holding companies." On March 31, 2006, the Federal Reserve changed the definition of a small bank holding company to bank holding companies with less than $500 million in total assets (an increase from $150 million under the prior rule). However, bank holding companies will not qualify under the new definition if they (i) are engaged in significant nonbanking activities either directly or indirectly through a subsidiary, (ii) conduct significant off-balance sheet activities, including securitizations or managing or administering assets for third parties, or (iii) have a material amount of debt or equity securities (including trust preferred securities) outstanding that are registered with the SEC. Although we have less than $500 million in assets, it is unclear at this point whether we otherwise meet the requirements for qualifying as a "small bank holding company." According to the Federal Reserve Board, the revision of the criterion to exclude any bank holding company that has outstanding a material amount of SEC-registered debt or equity securities reflects the fact that SEC registrants typically exhibit a degree of complexity of operations and access to multiple funding sources that warrants excluding them from the new policy statement and subjecting them to the capital guidelines. In the adopting release for the new rule, the Federal Reserve Board stated that what constitutes a "material" amount of SEC-registered debt or equity for a particular bank holding company depends on the size, activities and condition of the relevant bank holding company. In lieu of using fixed measurable parameters of materiality across all institutions, the rule provides the Federal Reserve with supervisory flexibility in determining, on a case-by-case basis, the significance or materiality of activities or securities outstanding such that a bank holding company should be excluded from the policy statement and subject to the capital guidelines. Prior to adoption of this new rule, our holding company was subject to these capital guidelines, as it had more than $150 million in assets. Until the Federal Reserve provides further guidance on the new rules, it will be unclear whether our holding company will be subject to the exemption from the capital requirements for small bank holding companies. Regardless, our bank falls under these minimum capital requirements as set per bank regulatory agencies.

The following table sets forth the holding company's and the bank's various capital ratios at March 31, 2006 and at December 31, 2005. For all periods, the bank was considered "well capitalized" and the holding company met or exceeded its applicable regulatory capital requirements.

The following table outlines our various sources of borrowed funds during the three months ended March 31, 2006 and the year ended December 31, 2005, the amounts outstanding at the end of each period, at the maximum point for each component during the periods and on average for each period, and the average interest rate that we paid for each borrowing source. The maximum month-end balance represents the high indebtedness for each component of borrowed funds at any time during each of the periods shown.

				Maximum		Average for the
	Ending		Period-	Month-end		Period
	Balance		End Rate	Balance		Balance		Rate
	(Dollars in thousands)
At or for the Three Months
ended March 31, 2006
Federal Home Loan Bank advances	$	79,000	4.19 %	$	79,000	$	75,594	4.04 %
Securities sold under agreement to
repurchase	14,232		4.79 %	14,434		14,412		4.67 %
Federal funds purchased	-		5.28 %	1,471		649		6.25 %
Junior subordinated debentures	13,403		7.21 %	13,403		13,403		6.77 %

At or for the Year
ended December 31, 2005
Federal Home Loan Bank advances	$	79,500	3.84 %	$	81,500	$	74,013	3.44 %
Securities sold under agreement to
repurchase	14,680		4.32 %	18,947		16,710		3.35 %
Federal funds purchased	-		4.60 %	-		755		2.93 %
Junior subordinated debentures	13,403		6.74 %	13,403		6,384		6.57 %

The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements. Rather, our financial statements have been prepared on an historical cost basis in accordance with generally accepted accounting principles.

Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. As discussed previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.

Commitments to extend credit are agreements to lend to a client as long as the client has not violated any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At March 31, 2006, unfunded commitments to extend credit were $76.7 million, of which $33.2 million was at fixed rates and $43.5 million was at variable rates. At December 31, 2005, unfunded commitments to extend credit were $70.8 million, of which approximately $27.6 million was at fixed rates and $43.2 million was at variable rates. A significant portion of the unfunded commitments related to consumer equity lines of credit. Based on historical experience, we anticipate that a significant portion of these lines of credit will not be funded. We evaluate each client's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

At March 31, 2006, there was a $2.1 million commitment under letters of credit. At December 31, 2005, there was a $3.8 million commitment under a letter of credit. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.

Except as disclosed in this document, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly impact earnings.

Market risk is the risk of loss from adverse changes in market prices and rates, which principally arises from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities. Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business. Our asset/liability management committee ("ALCO") monitors and considers methods of managing exposure to interest rate risk. We have both an internal ALCO consisting of senior management that meets at various times during each month and a board ALCO that meets monthly. The ALCOs are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.

We actively monitor and manage our interest rate risk exposure principally by measuring our interest sensitivity "gap," which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available for sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in this same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates. We generally would benefit from increasing market rates of interest when we have an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when we are liability-sensitive.

We were asset sensitive during most of the year ended December 31, 2005 and during the three months ended March 31, 2006. As of March 31, 2006, we expect to be asset sensitive for the first three months, then we expect to be liabiltiy sensitive for the following nine months because a significant portion of our variable rate loans and a majority of our deposts reprice over a 12-month period. Approximately 57% and 61% of our loans were variable rate loans at March 31, 2006 and December 31, 2005, respectively. The ratio of cumulative gap to total earning assets after 12 months was (9.4%) because $37.3 million more liabilities will reprice in a 12 month period than assets. However, our gap analysis is not a precise indicator of our interest sensitivity position. The analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those rates are viewed by us as significantly less interest-sensitive than market-based rates such as those paid on noncore deposits. Net interest income may be affected by other significant factors in a given interest rate environment, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities.

Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

At March 31, 2006, our liquid assets, consisting of cash and due from banks and federal funds sold, amounted to $8.3 million, or 2.0% of total assets. Our investment securities at March 31, 2006 amounted to $37.4 million, or 9.0% of total assets. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner. However, $21.2 million of these securities are pledged against outstanding debt. Therefore, the related debt would need to be repaid prior to the securities being sold in order for these securities to be converted to cash. At December 31, 2005, our liquid assets amounted to $25.6 million, or 6.3% of total assets. Our investment securities at December 31, 2005 amounted to $36.1 million, or 8.9% of total assets. However, substantially all of these securities were pledged against outstanding debt.

Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. During most of 2005 and the first three months of 2006, as a result of historically low rates that were being earned on short-term liquidity investments, we chose to maintain a lower than normal level of short-term liquidity securities. In addition, we maintain two federal funds purchased lines of credit with correspondent banks totaling $18.1 million for which there were no borrowings against the lines at March 31, 2006. We are also a member of the Federal Home Loan Bank of Atlanta, from which applications for borrowings can be made for leverage purposes. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at March 31, 2006 was $22.8 million, based on the bank's $4.4 million investment in FHLB stock, as well as qualifying mortgages available to secure any future borrowings.

The company has signed a ten-year, five-month lease on a new site for its headquarters and main office that are to be relocated in 2006. The lease provides for a substantial reduction in the rent rate for the first five months of the lease in order to induce the company into the agreement. In accordance with SFAS No. 13, "Accounting for Leases," the discounted rent will be amortized over the initial lease term. Beginning in mid-2006, the monthly rent expense will be approximately $41,000. The lease provides for annual lease rate escalations based on cost of living adjustments.

We believe that our existing stable base of core deposits, borrowings from the FHLB, and short-term repurchase agreements will enable us to successfully meet our long-term liquidity needs.

Asset/liability management is the process by which we monitor and control the mix and maturities of our assets and liabilities. The essential purposes of asset/liability management are to ensure adequate liquidity and to maintain an appropriate balance between interest sensitive assets and liabilities in order to minimize potentially adverse impacts on earnings from changes in market interest rates. We have both an internal ALCO consisting of senior management that meets at various times during each month and a board ALCO that meets monthly. The ALCOs are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.

The following table sets forth information regarding our rate sensitivity as of March 31, 2006 for each of the time intervals indicated. The information in the table may not be indicative of our rate sensitivity position at other points in time. In addition, the maturity distribution indicated in the table may differ from the contractual maturities of the earning assets and interest-bearing liabilities presented due to consideration of prepayment speeds under various interest rate change scenarios in the application of the interest rate sensitivity methods described above.

		Within		After three but			After one but		After
		three		within twelve			within five		five
		months		months			years		years		Total
		(Dollars in thousands)
Interest-earning assets:
Federal funds sold	$	2,785	$		-	$	-	$	-	$	2,785
Investment securities		1,226			4,397		14,651		11,430		31,704
Loans		215,665			15,216		98,837		34,348		364,066

Total earning assets	$	219,676	$		19,613	$	113,488	$	45,778	$	398,555

Interest-bearing liabilities:
Money market and NOW	$	108,752	$		-	$	-	$	-	$	108,752
Regular savings		1,341			-		-		-		1,341
Time deposits		42,512			59,870		38,062		3,373		143,817
Repurchase agreements		14,232			-		-		-		14,232
FHLB advances		26,500			10,000		39,500		3,000		79,000
Junior subordinated debentures		13,403			-		-		-		13,403

Total interest-bearing liabilities	$	206,740	$		69,870	$	77,562	$	6,373	$	360,545

Period gap	$	12,936	$		(50,257)	$	35,926	$	39,405
Cumulative gap		12,936			(37,321)		(1,395)		38,010

Ratio of cumulative gap total assets total earning assets		3.2 %			(9.4 %)		(0.4 %)		9.5 %

The following table sets forth information regarding our rate sensitivity, as of December 31, 2005, at each of the time intervals.

		Within		After three but			After one but		After
		three		within twelve			within five		five
		months		months			years		years		Total
		(Dollars in thousands)
Interest-earning assets:
Federal funds sold	$	19,381	$		-	$	-	$	-	$	19,381
Investment securities		1,414			5,255		16,322		7,664		30,655
Loans		213,020			14,672		80,434		30,601		338,727

Total earning assets	$	233,815	$		19,927	$	96,756	$	38,265	$	388,763

Interest-bearing liabilities:
Money market and NOW	$	85,738	$		-	$	-	$	-	$	85,738
Regular savings		1,319			-		-		-		1,319
Time deposits		19,468			71,692		50,749		3,469		145,378
Repurchase agreements		14,680			-		-		-		14,680
FHLB advances		27,000			10,000		39,500		3,000		79,500
Junior subordinated debentures		13,403			-		-		-		13,403

Total interest-bearing liabilities	$	161,608	$		81,692	$	90,249	$	6,469	$	340,018

Period gap	$	72,207	$		(61,765)	$	6,507	$	31,796
Cumulative gap		72,207			10,442		16,949		48,745

Ratio of cumulative gap total assets total earning assets		18.6 %			2.7 %		4.4 %		12.5 %

The following is a summary of recent authoritative pronouncements that affect accounting, reporting, and disclosure of financial information by us:

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140. This Statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. We do not believe that the adoption of SFAS No. 155 will have a material impact on our financial position, results of operations and cash flows.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140. This Statement amends FASB No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract; requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; permits an entity to choose its subsequent measurement methods for each class of separately recognized servicing assets and servicing liabilities; at its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity's exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. An entity should adopt SFAS No. 156 as of the beginning of its first fiscal year that begins after September 15, 2006. We do not believe the adoption of SFAS No. 156 will have a material impact on our financial position, results of operations and cash flows.

	Three Months Ended March 31,
	2006		2005
Net income as reported	$	841,904	$	660,148
Add: Stock-based employee compensation expense included in reported net
income, net of related tax effects		-		-
Deduct: Total stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax effects		-		(17,992)

Pro forma net income including stock-based compensation cost based on fair-
value method	$	841,904	$	642,156

Earnings per share:
Basic-as reported	$	0.32	$	0.25
Basic-pro forma	$	0.32	$	0.24

Diluted-as reported	$	0.29	$	0.23
Diluted-pro forma	$	0.29	$	0.22

		Three months ended
		March 31,
		2006		2005

Base compensation	$	725,831	$	537,564
Incentive compensation		142,000		130,500
Total compensation		867,831		668,064
Benefits		206,230		158,239
Capitalized loan origination costs		(40,320)		(31,510)
Total compensation and benefits	$	1,033,741	$	794,793

		March 31,
		2006		2005
		(Dollars in thousands)


Balance, beginning of period	$	4,490	$	3,717

Loans charged-off		(408)		-

Recoveries of loans previously charged-off		33		11

Net loans (charged-off) recovery	$	(375)	$	11

Provision for loan losses		400		345

Balance, end of period	$	4,515	$	4,073

Allowance for loan losses to gross loans		1.24 %		1.38 %

Net charge-offs to average loans		0.11 %		0.00 %

		March 31, 2006		December 31, 2005
		(Dollars in thousands)

Loans over 90 days past due	$	456	$	351

Loans on nonaccrual:
Mortgage		1,038		419
Commercial		27		41
Consumer		18		6
Total nonaccrual loans		1,083		466

Troubled debt restructuring		-		-

Total of nonperforming loans		1,083		466

Other nonperforming assets		1,838		-

Total nonperforming assets	$	2,921	$	466

Percentage of total assets		0.70 %		0.12 %

Percentage of nonperforming loans
and assets to gross loans		0.80 %		0.14 %

		March 31, 2006

Three months or less	$	30,409
Over three through six months		17,772
Over six through twelve months		23,511
Over twelve months		41,374
Total	$	113,066

	March 31, 2006	December 31, 2005
Return on average assets	0.85 %	0.70 %
Return on average equity	10.92 %	8.44 %
Equity to assets ratio	7.77 %	8.36 %

	March 31, 2006		December 31, 2005
	Holding		Holding
	Company	Bank	Company	Bank

Total risk-based capital	14.2 %	13.1 %	14.9 %	13.7 %
Tier 1 risk-based capital	13.0 %	11.9 %	13.6 %	12.4 %
Leverage capital	11.1 %	10.1 %	11.6 %	10.5 %

		GREENVILLE FIRST BANCSHARES, INC.
		Registrant




Date: May 15, 2006		/s/R. Arthur Seaver, Jr.
		R. Arthur Seaver, Jr.
		Chief Executive Officer




Date: May 15, 2006		/s/James M. Austin, III
		James M. Austin, III
		Chief Financial Officer